Final Offer Arbitration with Asymmetric Evidence

As disputants increasingly rely upon arbitration it is critical to understand outcomes that are likely to arise from mechanisms like final offer arbitration. While a sizable experimental literature investigating strategic behavior in final offer arbitration exists, that work has overwhelmingly focused on situations where the arbitrator’s beliefs about the appropriate resolution are symmetric and uninfluenced by the disputants’ cases. This paper considers a setting where the arbitrator’s beliefs depend on the strength of each disputant’s case. We find disputant responses to changes in the relative strength of their case generally follow comparative statics predictions. Further, we find that final offers are closer to theoretical predictions when the mean of the arbitrator’s preferences favors the disputant and the variance of those preferences is lower. However, we also observe that disputants become more aggressive the more the arbitrator’s preferences are skewed in the disputant’s favor.